ACIT, Patiala V. M/s Vishal Coaters Pvt. Ltd., Patiala

ITA 249/CHANDI/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2419 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 05-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: YASH PAL GOYAL
• Keywords: Capital asset; Depreciation; Commercial expediency; Revenue expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NOS.281 & 282 /CHD/2013 (ASSESSMENT YEAR : 2008-09 & 2009-10) VISHAL COATERS LIMITED, VS. THE A.C.I.T., VILLAGE KHUSHROPUR, CIRCLE PATIALA. MAIN ROAD, DISTT.PATIALA. PAN: AABCV2767P ITA NO.249/CHD/2013 (ASSESSMENT YEAR : 2008-09) THE A.C.I.T., VS. VISHAL COATERS LIMITED, CIRCLE PATIALA. VILLAGE KHUSHROPUR, CHANDIGARH. MAIN ROAD, DISTT.PATIALA. PAN: AABCV2767P (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI YASH PAL GOYAL DEPARTMENT BY : SHRI AKHILESH GUPTA, DR DATE OF HEARING : 26.06.2013 DATE OF PRONOUNCEMENT : 28.06.2013 O R D E R PER SUSHMA CHOWLA, J.M. : OUT OF THREE APPEALS TWO CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE ARE AGAINST THE ORDER OF THE COMMISSIONER O F INCOME-TAX (APPEALS), PATIALA DATED 28.12.2012 RELATING TO ASS ESSMENT YEAR 2008-09 AGAINST THE ORDER PASSED U/S 143(3), 1961 OF THE IN COME TAX ACT AND THE THIRD APPEAL IS FILED BY THE ASSESSEE AGAINST THE O RDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), PATIALA DATED 09.01.2013 2 RELATING TO ASSESSMENT YEAR 2009-10 AGAINST THE ORD ER PASSED U/S 143(3) OF THE INCOME TAX ACT 1961 (IN SHORT THE ACT). 2. ALL THE THREE APPEALS RELATING TO THE SAME ASSES SEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLI DATED ORDER FOR THE SAKE OF CONVENIENCE. 3. COMMON GROUNDS OF APPEAL HAVE BEEN RAISED BY THE ASSESSEE IN BOTH THE APPEALS RELATING TO ASSESSMENT YEARS 2008- 09 AND 2009-10 AND THE SAME READ AS UNDER: 1. THAT THE LEARNED A.O. HAS ERRED BOTH IN LAW AND FACTS IN DIS ALLOWING INTEREST OF RS. 1598217/- UNDER SECTION 36 (1) (III) OF INCOME TAX ACT 1961 ON ACCOUNT OF INVESTMENT IN PURCHASE OF SHARES WORTH RS. 14529250/- OF M/S D SG PAPERS PRIVATE LIMITED. 2.1) THAT THE LEARNED CIT T (A) HAS ERRED BOTH IN LAW AND FACTS IN UPHOLDING TH E DISALLOWANCE OF INTEREST OF RS. 20921/- (RS.59063 I N ITA NO.282/CHD/2013) UNDER SECTION 36 (1) (III) READ WITH ITS PROVISO OF INCOME TAX ACT 1961: II). THE PROVISION OF SECTION 36 (1) (III) READ WITH ITS PRO VISO IS NOT APPLICABLE IN THIS CASE SINCE THERE IS NEITHER ANY EXTENSION OF EXISTING BU SINESS NOR ANY CAPITAL HAS BEEN BORROWED FOR ACQUISITION OF ANY ASSET. THE ASSESSIN G OFFICER AND THE LEARNED CIT (A) HAS FAILED TO ESTABLISH ANY RELATION OR NEX US OF ANY LOAN TAKEN OR BORROWED FOR AC III). THE A.O. EVEN FAILED TO MENTION THE DATE ON WHICH T HE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET AND ALSO THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE. THE FAILURE LIES WITH THE A.O. DU E TO THE FACT THAT NO LOAN WAS EVER RAISED FOR ACQUISITION OF AN ASSET. IV). THE LEARNED CIT (A) FAILED TO APPRECIATE THE W RITTEN SUBMISSIONS MADE DURING THE APPELLATE PROCEEDINGS. THE APPELLANT HAS EXPLAI NED THE SOURCE OF PAYMENT FOR ACQUISITION OF ANY OF THESE NEW ASSETS AND THEREBY THE CAPITAL HAS NOT BEEN BORROWED FOR THE ACQUISITION OF THESE NEW ASSETS. 4. THE REVENUE IN ITA NO.249/CHD/2013 HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.L8,47,638/- MADE BY THE AO ON A/C OF DISALLOWANCE OF EXPENDITURE INCURRED, INTERALIA, ON PURCHASE OF NEW ITEMS LIKE PUMPS, SENSORS, UPS, PEN DRIVES, PRINTEX ETC. IGNORING THE FACT THAT MOST OF THE ITEMS PURCHASED BY THE APPELL ANT WERE NEW IDENTIFIABLE ASSETS. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT (A) HAS ERRED IN HOLDING THE ACQUISITION OF NEW ASSETS FOR REPLACEME NT OF EXISTING ASSETS AS CURRENT REPAIRS, THOUGH THE HON'BLE SUPREME COUR T IN THE CASES OF CIT VS. SRI MANGAYARKARSHI MILLS (P) LTD. (315 ITR 114)(2009) & 3 CIT VS. SARAVANA SPINNING MILLS (P) LTD. (293 ITR 2 01)(2007) HAS HELD THAT REPLACEMENT OF MACHINERY WAS CAPITAL EXPE NDITURE AND COULD NOT BE TREATED AS CURRENT REPAIRS. 3. IT IS PRAYED THAT THE ORDER OF LD. CIT(A) BE SET AS IDE AND THAT OF THE AO RESTORED. 4. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROU NDS OF APPEAL BEFORE THE APPEAL IS HEARD AND FINALLY DISPOSED OF. 5. THE ISSUE IN GROUND NO.1 RAISED BY THE ASSESSEE IS AGAINST THE DISALLOWANCE MADE UNDER SECTION 36(1)(III) OF THE A CT . THE LEARNED A.R. FOR THE ASSESSEE FAIRLY POINTED OUT THAT THE I SSUE RAISED VIDE GROUND NO.1 IS SQUARELY COVERED BY THE ORDER OF THE TRIBUN AL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2007-08. 6. THE LEARNED D.R. FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW AND THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2007-08. 7. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT T HE ASSESSEE HAD INVESTED RS.1,45,29,250/- IN THE SHARE CAPITAL OF M /S DSG PAPERS PRIVATE LIMITED. THE SAID INVESTMENT WAS MADE IN THE EARLI ER YEARS. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD PAID INTE REST OF RS.59,65,795/- ON THE BORROWED CAPITAL. THE ASSESSEE WAS SHOW CAU SED AS TO WHY THE INTEREST ON PROPORTIONATE BASIS OF CAPITAL INVESTME NT IN THE SHARE CAPITAL OF DSG PAPERS PRIVATE LIMITED SHOULD NOT BE DISALLO WED, IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIG H COURT IN CIT VS. ABHISHEK INDUSTRIES [286 ITR 1 (P&H)]. THE REPLY O F THE ASSESSEE IS INCORPORATED AT PAGES 23 AND 24 OF THE ASSESSMENT O RDER. THE ASSESSING OFFICER IN VIEW OF THE RATIO LAID DOWN BY THE HON'B LE PUNJAB & HARYANA HIGH COURT IN CIT VS. ABHISHEK INDUSTRIES (SUPRA) C OMPUTED DISALLOWANCE OF INTEREST AT RS.15,98,217/-. 4 8. THE CIT (APPEALS) UPHELD THE ADDITION MADE BY TH E ASSESSING OFFICER, IN VIEW OF THE ORDER OF THE TRIBUNAL IN AS SESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2007-08. 9. WE FIND THAT SIMILAR ISSUE OF DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2007-08. THE TRIBUNAL IN ITA NO.34 7/CHD/2011 VIDE ORDER DATED 26.3.2012 HELD AS UNDER: 4(II). WE HAVE HEARD THE RIVAL SUBMISSIONS, FACTS O F THE CASE AND THE RELEVANT RECORDS. BRIEF FACTS OF THE CASE ARE THAT THE ASSE SSEE INVESTED IN THE PURCHASE OF SHARES OF M/S DSG PAPER PVT LTD FOR AN AMOUNT OF RS . 1,,45,29,250/-. THE ASSESSEE HAD PAID INTEREST OF RS. 46,17,225/-, ON THE BORROWED CAPITAL UTILIZED FOR THIS PURPOSE. THE AO SENT A SHOW CAUSE TO THE ASSESSEE ASKING HIM TO EXPLAIN WHY INTEREST PAID ON FUNDS INVESTED IN THIS SHARE CAPITAL OF THE COMPANY BE NOT DISALLOWED ON PROPORTIONATE BASIS FOR NOT BE ING INCIDENTAL TO ITS BUSINESS AND NOT ARISING OUT COMMERCIAL EXPEDIENCY. THE AO RELIED UPON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT V. ABHISHEK INDUSTRIES, 286 ITR 1 AND THE DECISION OF CIT V. MUNJAL SALES C ORPORATION, 298 ITR 294 AND DISALLOWED THE INTEREST ON PROPORTIONATE BASIS AS THE INVESTMENT MADE IN THE PURCHASE OF SHARES IS NOT THE BUSINESS OF THE ASSES SEE NOR IT IS 4(III). THE LD. CIT(A) SOUGHT REMAND REPORT OF THE AO ON THE SU BMISSIONS MADE BY THE ASSESSEE BEFORE HIM AND CONCLUDED HIS FINDINGS IN P ARA 7.4 WHICH ARE REPRODUCED HEREUNDER: 7.4 IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND RIVAL SUBMISSIONS OF BOTH THE AO IN HIS REMAND REPORT AND THE SUBMISSION OF THE LD. COUNSEL IT IS SEEN THAT OUT OF THE BORROWIN GS MADE FOR THE PURPOSES OF BUSINESS THE APPELLANT HAS DIVERTED FUN DS FOR PURCHASE OF SHARES IN THE SISTER CONCERN M/S DSG PAPERS (P) LTD . THE PURCHASE OF THESE SHARES CAN NOT BE HELD TO BE FOR PURPOSES OF BUSINESS. THE BORROWINGS HAVE THUS BEEN DIVERTED FOR PURPOSES OTH ER THAN BUSINESS AND INTEREST OF RS. 1,33,185/- HAS BEEN RIGHTLY DISALLO WED BY THE AO. 4(IV). HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE DECISION RELIED UPON BY THE AO AS ALSO THE FINDINGS RECORDED BY THE LD. CIT(A), WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF LD. CIT(A) AND HENCE THE FINDINGS OF THE LD. CIT(A) ARE UPHELD. GROUND NO. 6 OF ASSE SSEES APPEAL IS DISMISSED. THUS, THE GROUND NO. 6 RAISED BY THE ASSESSEE IN H IS APPEAL IS DISCUSSED AND ADJUDICATED IN ITA NO. 347/CHD/2011. 10. THE ISSUE ARISING BEFORE US IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSM ENT YEAR 2007-08 AND FOLLOWING THE PARITY OF REASONING WE UPHOLD THE DIS ALLOWANCE OF RS.15,98,217/-. THE GROUND NO.1 RAISED BY THE ASSE SSEE IS THUS DISMISSED. 5 11. THE GROUND OF APPEAL NO.2 IS AGAINST THE DISALL OWANCE OF RS.20,921/- UNDER THE PROVISO TO SECTION 36(1)(III) OF THE ACT RELATING TO ASSESSMENT YEAR 2008-09. THE ASSESSEE IS AGGRIEVED BY THE APPLICATION OF PROVISO TO SECTION 36(1)(III) OF THE ORDER IN OR DER TO COMPUTE THE DISALLOWANCE IN RELATION TO THE ASSET PURCHASED ON 27.3.1998. HOWEVER, THE DISALLOWANCE UNDER THE PROVISO TO SECTION 36(1 )(III) OF THE ACT HAD BEEN COMPUTED FOR THE COMPLETE YEAR. ADMITTEDLY, T HE SAID ASSET WAS UNDER UTILIZATION. WE ARE IN CONFORMITY WITH THE O RDERS OF THE AUTHORITIES BELOW IN HOLDING THAT THE DISALLOWANCE IS WARRANTED IN VIEW OF THE PROVISO TO SECTION 36(1)(III) OF THE ACT. H OWEVER, WE DIRECT THE ASSESSING OFFICER TO RECOMPUTE THE DISALLOWANCE FOR A PERIOD OF FOUR DAYS I.E. STARTING FROM 27.3.2008 TO 31.3.2008. TH E GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IN ASSESSMENT YEAR 2008 -09 IS THUS PARTLY ALLOWED. 12. DURING THE ASSESSMENT YEAR 2009-10 THE ASSESSEE HAD PURCHASED MACHINERY AMOUNTING TO RS.26,84,683/- WHICH WAS PUT TO USE ON 26.9.2008. THE ASSESSING OFFICER HAD DISALLOWED IN TEREST OF RS.59,063/- FOR THE PERIOD OF FIVE MONTHS UNDER THE PROVISO TO SECTION 36(1)(III) OF THE ACT. IN VIEW OF OUR FINDINGS IN THE PARAS HERE INABOVE WE UPHOLD THE DISALLOWANCE OF RS.59,063/- UNDER THE PROVISO TO SE CTION 36(1)(III) OF THE ACT. THE GROUND OF APPEAL NO.2 RAISED BY THE ASSES SEE IN ASSESSMENT YEAR 2009-10 IS DISMISSED. 13. THE REVENUE VIDE GROUND NOS. 1 AND 2 IS AGGRIEV ED BY THE DELETION OF ADDITION OF RS.18,47,638/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE INCURRED ON PURCHASE OF VARIOUS ITEMS DURING THE PREVIOUS YEAR. THE ASSESSEE IS ENGAGED IN THE MANUFACTURING OF PAPERS AND IS CARRYING ON THE MANUFACTURING ACTI VITIES. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS TABULATED CERTAIN 6 ITEMS/SERVICES DEBITED BY THE ASSESSEE UNDER THE HE AD CURRENT REPAIRS AND AFTER ALLOWING DEPRECIATION OF 15%, THE NET DIS ALLOWANCE WAS WORKED OUT AT RS.18,40,838/-. FURTHER THE ASSESSEE HAD CL AIMED COMPUTER EXPENDITURE OF RS.17,000/- ON WHICH DEPRECIATION @ 60% WAS ALLOWED AND SUM OF RS.6800/- WAS ADDED AS INCOME OF THE ASS ESSEE. THE LIST OF THE ITEMS NUMBERING 34 ARE TABULATED AT PAGES 30 TO 32 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SAID EXPENDITURE WAS NOT IN THE NATURE OF REPAIR AND MAINTENANCE BUT WAS AN ADDITION TO THE CAPITAL ASSET. 14. THE CIT (APPEALS) ALLOWED THE CLAIM OF THE ASSE SSEE HOLDING HE SAME TO BE REVENUE IN NATURE. 15. ON PERUSAL OF THE RECORD AND AFTER CONSIDERING THE LIST OF THE ITEMS WHICH WERE DISALLOWED BY THE ASSESSING OFFICER, ENU MERATED AT PAGES 30 TO 32 OF THE ASSESSMENT ORDER AND ALSO THE EXPLANAT ION OF THE ASSESSEE BILL-WISE IN RESPECT OF EACH ITEM OF EXPENDITURE WE OBSERVE AS FOLLOWS. 16. THE MAJORITY OF THE EXPENDITURE BY THE ASSESSEE WAS ON ITEMS LIKE S.S.PIPE, ELECTRIC MOTORS, FUSE SWITCHES, MCCB, SHE ETS, VALVES, ETC. ALL THE SAID ITEMS ARE IN THE NATURE OF REPAIRS AND MAINTENANCE. HOWEVER, THE ASSESSEE HAS ALSO PURCHASED PUMPS, PRI NTERS, ETC., WHICH ARE CAPITAL IN NATURE AND THE SAME ARE NOT REVENUE EXPENDITURE. ONE SUCH EXPENDITURE IS MAGNETIC FLOW METER PURCHASED ON 10. 8.2007 FOR RS.36,221/-, DOSING PUMP MODEL BOUGHT ON 11.8.2007 FOR RS.61,500/-, PRINTEX BOUGHT ON 4.10.2007 FOR RS.47,773/-, PUMP B OUGHT ON 10.1.2008 FOR RS.49,677/-. WE DIRECT THE ASSESSING OFFICER T O ALLOW DEPRECIATION ON THE CUMULATIVE VALUE OF THE ABOVE SAID ITEMS AND THE BALANCE EXPENDITURE IS HELD TO BE REVENUE IN NATURE. WE PA RTLY UPHOLD THE ORDER 7 OF THE CIT (APPEALS). IN VIEW THEREOF, THE GROUND OF APPEAL RAISED BY THE REVENUE IS PARTLY ALLOWED. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2008-09 IS PARTLY ALLOWED AND FOR ASSESSMENT YEAR 2 009-10 IS DISMISSED. THE APPEAL FILED BY THE REVENUE FOR ASSESSMENT YEAR 2008-09 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF JUNE, 2013. SD/- SD/- (T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 28 TH JUNE , 2013 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH